Annual charges and leap days

[AleisterCrowley]

If a contract states an annual charge of, say, £500pa- is the additional day in a leap year;
(a) ignored
(b) charged at the implied daily rate (i.e. a leap year would be £501.37 ish)
(c) 'other'

Are there any accounting rules that deal with this?
(I'm not worried about leap seconds...)

ta muchly
AC

[pje16]

ignored AFAIK

PS wish I hadn't googled it now

[Hallucigenia]

No different in principle to a monthly charge, which stays the same regardless of whether the month has 28, 29, 30 or 31 days (or a daily charge and leap seconds). If it's for "a year" then it's regardless of the length of the year. If it's specified as "365 days", then that would be different.

[AleisterCrowley]

It does get a bit confusing as we have contractual quarterly charges which we convert down to a daily rate (we are charging for odd periods, and sometimes an asset becomes shared and the rate drops to 50%)
In these cases, if a period straddles a 29 Feb it gets charged for at ((quarterly x 4 )/ 365)...
Is this covered by GAAP or similar?

[Hallucigenia]

IANAL/A but from a customer's POV, if the charge is per quarter, any attempt to charge more than that in a quarter is a liberty, unless it's in the contract.

Put it this way, a normal Q1 has 90 days, you want to charge more for a leap year Q1 of 91 days than a normal Q3/4 of 92 days. That's a bleeding liberty.

So unless it's in the contract that you charge more for leap year quarters, in which case it's just an extra payment, then it's no different to any other quarter, just with a slightly lower rate per day.

If you're being that fussy about it then you should be adjusting your daily rate depending how many days the quarter has in it, dividing by 90/91/92 as appropriate.

[AleisterCrowley]

...
If you're being that fussy about it then you should be adjusting your daily rate depending how many days the quarter has in it, dividing by 90/91/92 as appropriate.

Well, it's a rate per quarterly charging period, of which there are four in a year (!) so the annual rate remaineth constant, and hence the daily rate
Obviously working back to a particular quarter would give odd results

It's a commercial cross charging thing, so no real customers involved. I'll ask my friendly accountant tomorrow
qtr- GBP -DAYS -daily rate
Q1 500 90 493.1506849
Q2 500 91 498.630137
Q3 500 92 504.109589
Q4 500 92 504.109589
Both sum to £2k (I hope)

[pje16]

1999.9999999

[AleisterCrowley]

de minimis I think

[Hallucigenia]

...
If you're being that fussy about it then you should be adjusting your daily rate depending how many days the quarter has in it, dividing by 90/91/92 as appropriate.

Well, it's a rate per quarterly charging period, of which there are four in a year (!) so the annual rate remaineth constant, and hence the daily rate
Obviously working back to a particular quarter would give odd results

There's nothing magic about calculating the daily rate by averaging across a year - but as you say, averaging across a year is the shortest period which shakes out those variations in quarter length (90/91/92)

Except it doesn't, because of leap years, you should be working out the average daily rate by dividing 4 years of revenue across (365+365+365+366).

Except that doesn't work, because the quarterly rate will probably go up in that time.

So you get the daily rate by dividing the annual revenue by 365.25 and everybody's happy - you don't have to make any weird one-off charges because of a Q1 that's still shorter than Q3/4 and the customer gets slightly overcharged for three years and then makes it back in the fourth so ends up square (and presuambly the nature of the relationship means they're unlikely not to see out the full period.

Yeah, I know, it should be 365.2422 days to allow for the "missing" leap year at the turn of most centuries, but you can worry about that when you get to it!!!

Not having had any accountancy training, I have come across this somewhere - it's maybe a switch in Excel to go between years of 365 days and 365.25 days?

[pje16]

I did have accountancy training and prepared clients accounts for many years including may who rented out properties
No adjustments were ever made for extra days in a leap year

[AleisterCrowley]

Taking a specific example very similar to my situation;
Company B have a 'box of tricks' connected to company A's power supply on a shared equipment site
The power consumption x kWh comes out at £500 pa
Company A need to bill Company B for this power
Clearly the box sits there consuming x kWh on 29 Feb same as every other day....

[pje16]

If you are paying £500pa, at a fixed rate, you get a free day

[Hallucigenia]

Taking a specific example very similar to my situation;
Company B have a 'box of tricks' connected to company A's power supply on a shared equipment site
The power consumption x kWh comes out at £500 pa
Company A need to bill Company B for this power
Clearly the box sits there consuming x kWh on 29 Feb same as every other day....

Charge them £500.34/year instead and ignore the leap year.

(and in reality what's going on in commercial power pricing means that this effect is minimal compared to the price rises happening at the moment)